The Compound and Friends - RWM Crosses $2 Billion in AUM, A New Investable Asset Class is Born with Dallas Tanner (CEO, Invitation Homes), Season Finale!

Episode Date: April 2, 2021

This week on the podcast - it's the season finale of the Compound Show! We'll be back this summer with something big, everyone's hard at work behind the scenes building something new. For now, I just want to say thanks for listening, rating, reviewing, sharing, commenting and making this show a part of your weekly routine. When I started the podcast last summer, I had no idea where it was going. It started out as a pandemic project but quickly grew to over a million downloads. My guest this episode is Dallas Tanner, CEO and founder of Invitation Homes, which trades on the New York Stock Exchange under the ticker symbol INVH. Dallas was one of the first entrepreneurs in America to recognize the potential for systematizing and scaling the single family rental home business. He now controls a portfolio of over 80,000 suburban homes from coast to coast. You can listen to the whole thing below, or find it wherever you like to listen to your favorite pods! DISCLOSURE: Josh is personally invested in shares of INVH and has been since 2017. Nothing said on this podcast is meant to be taken as a solicitation to buy or sell any securities nor does it constitute personalized financial advice. Please see my full disclaimer at the link below. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, it's JB. This week, my firm, Ritholtz Wealth Management, broke the $2 billion in assets under management mark. According to RIA Channel, there are out of 14,925 RIA firms that are wealth managers, only 189 of those firms, or 1.2% of the industry, have assets greater than $2 billion. So we're now among the top 1% of firms in the wealth management industry by assets. We launched the firm seven years ago. Four people, 65 million in total assets. We were nothing. And now we're over 2 billion. Almost 40 employees today, 1500 client households. We broke a billion dollars in assets in March, 2018. So in three years,

we've doubled the size of the firm. We've done this with no private equity backing or outside capital whatsoever. No outside investors. No financial support from anyone. Up until last year, couldn't even get a loan from a bank. Had to personally co-sign for loans. We did this with no M&A. Never bought out a firm. No acquisitions, no mergers, no transactions.

We have no recruiters. We don't pay signing bonuses. We have no headhunters. All of the advisors who joined us started out as fans of the content and the philosophy that we preach. We don't cut checks. We don't recruit. It's organic. It's a culture. The culture attracts like-minded clients and advisors nationwide. I have advisors in Bend, Oregon. I ain't never been to Bend, Oregon. I hear it's beautiful. We're open for business in Bend. Hilton Head, South Carolina. Never been there. Never been there. Not a golfer. Connecticut, Louisiana, Michigan, Massachusetts, North Carolina, Illinois, California, Florida, Rhode Island, Jersey. I have advisors in all of these places and they all came for the right reason. And I'm going to run through brick walls to validate their decision to join us over the next three decades. That's what I'm going to do.

Now, I can't prove that no other firm has ever done it this fast. But I doubt it. You would have to bring me proof. Because I know what it takes. I know what was required. I know what was required. I know how much sacrifice, how much energy, how much commentary from people who don't even know what they're talking about, I've had to endure.

How much problem solving we've had to do. Pioneering brand new ways of doing things where there really wasn't any roadmap. I know everything that went into it. So if you tell me there's another firm that's done what we've done, I don't believe it. Can't imagine it. We did a lot of this remotely. I'm amazed by what my people have been able to accomplish without being able to see each other in 12 months.

Every week, hundreds of clients need things to happen in their accounts. Distributions going out, deposits coming in. Every time money leaves an account, there's cashiering work to be done. Stock sales, bond sales have to happen. Fund sales, liquidations, money movement. Every time an account transfers in, there are positions that need to be sold. There's a tax consultation that has to take place. There's an allocation that has to be done.

Every time an inbound ACH wire hits, there's buying, there's rebalancing. It's more work on a daily basis than you can possibly imagine. We're not an ETF. These are separate accounts, thousands of separate accounts, painstaking work that requires precision and experience and attention to detail and checklists and double checklists and supervision over all of that and documentation and adherence to compliance procedures and the storing of data. You cannot be unserious and be doing this at the level we are. This cannot be a lifestyle practice.

By the way, when I hear that term, lifestyle practice, I want to throw up. You cannot be unserious and be doing this at the level that we are. This cannot be something that you do in between bike rides or trips to the beach. Tell me about lifestyle practice. We're talking about people's lives, their money, all of the money. It's freedom. It represents the future life they're going to be living. I said, I don't want to hear about the advisor lifestyle. You must be kidding me. If this isn't about the clients, if this is about you kiteboarding, you have my permission to shut up.

I told my people on Monday that managing $2 billion is an amazing accomplishment, but it's also an awesome responsibility. I quoted Spider-Man or Uncle Ben from Spider-Man. With great power comes great responsibility. We're talking about the hopes and dreams of a thousand families resting in our hands, relying on our systems. What do you think that's like to go to sleep with every night and to wake up with each morning? And so when I see a successful investment advisor sell his or her practice or sell a piece of his or her firm to an acquirer, I understand.

I get it. But you're not going to see me do that because we are destined for much bigger things. We've given too much of ourselves to get here. Been beaten up too much by our own work ethic. Our own expectations. There's an aura of destiny around what we're doing. Now, I know you might not be able to see it from where you sit, but you better feel me on this. I told my staff there is an inevitability about us.

We're destined for so much more than this. It's as obvious to me as the time of day on my watch. But for right now, I just want to take a breath and enjoy this moment. Zero to $2 billion under management in seven years with no help from anyone. And the scary part is is we didn't really know what we were doing for the first three or four years. We knew how to give financial advice. We knew how to invest. We didn't know how to run a company.

Now we know a lot and there are more of us. Now we're armed to the teeth with the knowledge and the expertise of how to actually do this. Now it's on for real. You ain't seen nothing yet. This episode is the last one I'm putting out until May. We're going to come back strong in a few weeks, but there's some work to be done behind the scenes to get ready for the next phase. I have some very big plans for this podcast. I started this thing last summer. And I put one out every week, I think since the end of May.

And you guys have been amazingly supportive listeners. You guys have been there for me. The ratings, the reviews, the downloads, sharing it, telling your friends about it. You guys have been there for me, the ratings, the reviews, the downloads, sharing it, telling your friends about it. You guys have been there and it's really been meaningful to me. I was in a pretty rough place last summer in the pandemic, really unsure of a lot of things like most of you probably were. And in some way, starting the show and working on it and putting all the heart and soul that I've put into it and bringing on amazing guests and planning these conversations and distributing it and telling people about it, all of it went into that in some way was almost therapeutic for me. And I love it. I love the process. I love working with Duncan and Matt Passy and all the guests and getting things edited and cleaned up and put out to you.

So we're going to keep going, but I need a few weeks off so I can line up what I'm lining up. And when I come back, oh my God, I think you guys are going to be very happy with the direction we take this. Today, I have a great guest. We're going to finish strong.

We're going to be talking about a brand new investable asset class, single family home rentals, which are absolutely booming right now as people leave the cities for suburban life, but are looking for something larger than an apartment to rent. So single family homes are the type of thing where it's traditionally been a mom and pop industry. And then along came somebody named Dallas Tanner.

And we're going to have Dallas on the show today. He is president and chief executive officer of Invitation Homes and a member of the company's board of directors since January 2019. So Dallas was one of the first people in the country who figured out that buying single family homes could be done in bulk and then renting them out to tenants to improve the experience of being a tenant could be done at scale. Dallas is on the show today. And full disclosure, I am a shareholder in Invitation Homes. You guys might have heard me talking about it on CNBC over the last five years. I am personally invested in the company. It's one of my largest holdings in REITs, and I am a happy shareholder, and we'll get into why during that conversation.

Dallas has been at the forefront of this industry since the beginning, effectively created the single-family rental industry, especially as an investable asset class. the single family rental industry, especially as an investable asset class. So since the founding of Invitation Homes in April 2012, he's been on the executive vice president, the chief investment officer, became the interim president in 2018. And then prior to the initial public offering of Invitation Homes, which happened in February of 2017, he served on the boards of all the company's predecessor entities. So there've been some mergers and stuff along the way, which we'll get into. So anyway, I'm so excited to have Dallas on the show. And I think you guys will

get a lot out of this conversation. I want to thank you once again for coming for the ride with me. Stay tuned until May. We will be back. I promise. And thanks for everything. Let's get right into it. Duncan, one more time until the summer. Hit that music. Let's go. The Compound Show with Downtown Josh Brown. How you doing? What a funnest financial podcast on Wall Street.

How we're helping millions of people to make smart decisions, grow wealth, and secure the bank. Welcome to The Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

The Compound Show. All right. I'm here with Dallas Tanner. Dallas is the president and CEO of Invitation Homes and a member of the company's board of directors since January 2019. Dallas, you've been involved with this company since day one before it was even a company. You were buying distressed properties during the financial crisis on your own. And then Blackstone took notice of what you were doing and wanted to talk to you further about something they were trying to do. Could you tell us that story in a way that's better than me fumbling it? Yeah, sure. I'll try. Long story short, it really goes back to 2004 and 2005. With my partners, I started buying workforce housing opportunities and was always drawn to real estate finance through school and everything that I studied.

I started buying manufactured housing communities in 2005. We basically got four or five family offices to back our thesis, and that helped us create the management infrastructure and everything. And then from there, we went into the great housing crisis of 2007, 8, 9, 10. We had a management platform in place. We had about a thousand manufactured home units in our portfolio just in Phoenix, Arizona. That's an important point here. And Phoenix was like probably the most efficient marketplace in terms of the foreclosure conundrum that was going. Not even a conundrum doesn't do it justice. The major problems, right, of all this distressed property. But it's a nonjudicial state, so it's a very efficient marketplace.

And so in 2009, this is a true story. On one of our manufactured housing properties, we had about 70 residents. We had a home that faced a very busy road on the front of it. This is so this like end of eight, early nine. And we put a sign, we put, you know, $15,000 in the house, updated it. And we put a sign in the yard that said home for rent. And we got 60 calls over the weekend. This is in 2009. And this was, we were like, okay, there's something much bigger happening here. Nobody was buying rental properties in 2009. And this was, we were like, okay, there's something much bigger happening here. Nobody was buying rental properties in 2009, right? Like the months of supply were creeping up

across every jurisdiction or map that you looked at. And so we started dipping our toe end of eight, early nine, and we bought from 2009 to 11, all cash, no finance. We bought about a thousand single family rental homes. So then fast forward to 2012, we've got this great little business. We own multi, we own manufactured housing, we own single family and the black stones of the world are going, how can we take some of these guys that have done this? And nobody had done it with scale, right? And they approached us about, they said, can you replicate what you've done in Phoenix? And can we do it across more MSAs? Because your thesis is the same as ours, which is there is a massive amount of demand for

professional housing and nobody's done it across the single family space. Okay. So let's, let's jump in there and define this. You're at the forefront of creating basically the at scale single family rental home business slash asset class by doing this. So this is distinct from apartment buildings, which is what most rentals are. So this is probably the most mom-and-pop area within housing that exists. Extremely fragmented. Most rental homes are an operator who has one or two properties

or is even renting out part of an attached house. Okay. So you guys have built this platform now and it's, let's say, April 2012. So you're founding Invitation Homes formally with backing from Blackstone. And you've got a major role here at that early point in time because of how early you were to doing this. Oh, yeah. Look, so me and my partners were all the co-founders. We start this thing out of our little office in Phoenix, Arizona. We partner with a couple of guys that owned a big multifamily footprint here in the US called Riverstone Residential, Nick and Peter Gould. And Nick, Peter, Marcus, Tom, and I, we set out to really reinvent the way people thought about that single family leasing experience. And you're exactly right. The business itself,

we've been doing this for hundreds of years in this country. It's just been done by really small mom and pop guys like you and I, that own one or two homes and it's a hobby or it's part of our, our retirement plan. So what we did is we went in and basically ran the same playbook that multifamily did in the late 70s, early 80s. And we started to aggregate and get enough scale to where we could offer services over time and distance that would make our value proposition better.

Now, there's a couple of points I think your listeners should understand. One, there's 16 million people in the US that lease a single family home today. It's a huge marketplace. It's a third of the 47 million households in the US period that rent something. So it's this massive audience, but nobody had done it with scale discipline, 24-hour customer service. There's no standardization. You deal with one landlord, your experience is miles apart from dealing with the next landlord in the next house you rent. You're bringing this standardization in pricing, in management, in how bills are paid, in how repairs are made. All right. So here's the environment. It's 2012 through, let's say, 2016.

The worst of the financial crisis is over. But I think even at that point, the typical single family home is still 40% underwater versus where it was at its peak price. So there's still opportunity to buy property. And you guys, I think you buy 50,000 homes over that four year stretch. All one by one. What is that? $13 billion invested between buying and renovating? Yeah, I think plus or minus that's somewhere right around where we were. I'm trying to think back to the IPO in 17, but we basically bought 50,000 homes. And on average, we're spending, in addition to call it the purchase price, another 10% of that price on initial renovations.

Now, here's what's remarkable. You're doing this as one-offs. There's nobody who could sell you a portfolio of 20,000 homes at a time. So I read that 94% of these 50,000 homes were in a single asset purchase. How do you do that? Were you working 30-hour days? That seems unbelievable to me. Yeah, a little bit of that. Plus, we built an unbelievable team. Blackstone was a terrific sponsor. They opened up their resources to us as well in terms of back office support, things like that. But we really, we'd been running this offense, so to speak in Phoenix for two years in just single family. And so we'd gotten really good at it. Self-contained management, self-contained operation, self-contained construction.

And so we went out and I lived in the road for about two years trying to recreate what we built in Phoenix across, you know, Southern California, Seattle, Atlanta, parts of Florida. And we knew that we had a moment in time to your point about the discounts. And to be really clear, I mean, a lot of private equity deserves some recognition for this. They took a lot of risk. Prices were still falling. I think the Blackstones of the world endorsing the space actually helped the bottom happen because it signaled that, hey, smart capital says this has gotten way too cheap. And I think they deserve a lot more credit for taking the risks they did back then. But look, we just knew that the demand was there. That's a really important point. Back to that first house. People want quality housing with good schools, great transportation, whether you own or lease doesn't matter. People want to be in great neighborhoods. And there was this massive amount of demand. There still is today in 2021 for folks that want to be down payment light that want to be a great product in the right areas. I want to reiterate something that you said, or just put a little emphasis on it. I think it's important. Nationwide, home prices had fallen

by 30% between 07 and 09. And 30% in terms of like thinking about the stock market doesn't seem like that much. But keep in mind, that's a national average. So you have markets where it's 80%. Las Vegas, Phoenix, Florida, Inland Empire, right? And nobody can get loans at this point because the banks are out of business in terms of making new loans. So somebody had to come in. And I think in those early days, most of what you were buying were distressed properties. There was nothing wrong with the property. It was distressed owners. In many cases, banks stuck with these things on their books. So I think you and some of the other groups that were operating at the time were responsible for putting a floor. I think

Colony was out there, I've read, and Starwood was out there. And these eventually became part of Invitation Homes, but I'll let you tell how that part of the transaction came to be. Yeah, no, you're right. And I think it's an important point that you and I own homes and neighborhoods maybe are in parts of the country where a lot of our neighbors were short selling or they were bank owned and it hurt community values at the end of the day. So coming in and buying homes that were in disrepair or had been vacant for a couple of years creates all kinds of issues. And then bringing them back up to a standard that's even better than what's probably in the neighborhood was a real value add story. And so I think you're spot on. So we do the

50,000 homes call it in the first three and a half years, which was unbelievable. We went really quick and aggregating. Then we spent about a year and a half really fine tuning our processes and making sure that the customer service element was a 10 out of 10. And that led us to that IPO moment. So the IPO, we IPO at the end of January, February of 17, that would have been five years plus or minus from when we started the company in April of 12. And it was, it was heavily subscribed. People love the story. You raised 1.8 billion. It was the second largest REIT IPO of all time at that time and probably still. Yeah, it was a fantastic execution. And the story was really resonating because you think about that.

You're in 2017. We've now been on a housing call to run for five years, right? Today, we're kind of at the end of nine or 10 years, a little bit of softening, but not really. And so the momentum was there. People understood the business model. They understood that real estate had rebounded. And people are going, wait a second.

There's a million and a half multifamily units. A lot of them publicly held and run in a professional way. This makes sense. This makes sense. And people are still getting it. But the reality is shortly after our IPO, about three or four months later, we started talking to Colony and we had market overlap of say 85%. It was a really, on paper, I guess I should say it made a lot of sense. And we looked at it and thought there's a lot of synergies here by combining the two portfolios. So we did a merger that closed in the fall of 17,

went from 50 to 80,000 doors, market cap, you know, 16 billion, something like that. And what was amazing is we just got that much more efficient, like margin expansion, all the things you want to see in an operating business, coupled with the fact that we can actually offer more services. That's the magic to this business. The more scale you get, the better density and concentration you have in the marketplace. Actually, the better value proposition you can have for the customer, whether it's smart home technology, all these other services. And so we gained some things by putting the two businesses together and we've been on a really good run. And I think, I'm sure we'll talk about this. This business does really well in normal

cycles. It does excellent in down cycles. Back in 2009, when we had the 1,000 homes in Phoenix, our occupancy was always 96%. It was really healthy. And your customer is about two times as sticky as a multifamily tenant, meaning they stay for about three years. So it's just a great business. And the best part about it is it's a needs. It's a housing need business. Like people want this.

So I want to go back to that point you made about overlap. Overlap is good in this case because the more homes you have in a given community, the more cost effective it is to deploy resources locally in that area. And you guys, I think, have been disciplined in terms of not having this metastasize across every region of the country. I think a third of your revenue is coming out of California, Washington, Arizona, and disciplined in terms of not having this metastasize across every region of the country. I think a third of your revenue is coming out of California, Washington, Arizona, and then another third from Florida. These are big, important markets to you.

And so the more homes you have in these markets, the more you can do at a better cost. That's really important part of the story. Totally. I mean, said simply, we have almost 13,000 homes in Atlanta. We run 13,000 homes in Atlanta as efficiently or better than we do the 4,000 homes we own in Seattle. We'd love to see Seattle get to 10,000 homes, 12,000 homes. There's three major principles that we invest in. Location, we're not going to compromise. The right scale, and then being high touch in the approach. If you do those three things really well, you're going to have a the right scale, and then being high touch in the approach.

If you do those three things really well, you're going to have a great business, a really loyal customer, and you're going to find that that efficiency helps you expand that return profile that your shareholders are looking for. So you're spot on. I mean, scale is your friend in this business for sure. Now, you're looking at very specific characteristics of the places that you want to be. Population growth forecasts, employment growth, household formation, historical and forecast levels of residential home construction, discounts, replacement costs, size of market. Couldn't I just make it easier for you and say, go where the top 50 NASDAQ 100 companies are headquartered? Couldn't we cut out a lot of the analytics that you're doing, or is it not that simple? Well, it can be. I will tell you,

there are a few things about markets where maybe net migration doesn't tell you everything, but the country's population is moving a foot south every day. If you look at the median migration patterns, the country continues to move about one foot further south every day. It's a couple of things, warm weather, friendly business climates, and where wage and household and demographic formation is almost two times the US average. So it is that simple from that perspective. But then within a market, you can screw some things up. You need to be disciplined about which submarkets and why. You've got to understand the nuances with markets too. For example, you can look at school scores on some public data information, but it doesn't

tell you the whole story about charter. It doesn't tell you the whole story about some of the other things that are maybe going on in that neighborhood. And that's why in our business, while we have a lot of back office support, our investors and our operators are all local. We have 800 people in the markets reviewing and analyzing all these decision trees. It sounds like a large percentage of this can just be vacuuming up data and spitting out an answer. But then maybe it's that last 20% that has to be seen with human eyes

and felt and touched so that you guys get that final edge of we're making good decisions based on local realities. 100%. You want to validate. Yep. You want to validate what the data is telling you. Okay. I read this. I think this is from two years ago. I assume it's somewhat the same still.

You're 80,000 homes. You are the biggest player in this space. But even still, you're tiny compared to the potential opportunity. 16 million single family rentals and institutions only hold 300 to 350,000 of that pie. And even within institutional, most of that is dominated by regional institutions. So you guys are big, but similar to my industry, in asset management, no one has scale. Vanguard and BlackRock are the only two firms with scale. Everyone else is tiny, no matter how big they are. This sounds like that.

Is that what you emphasize to investors who you want to think about you as a growth opportunity more than an income opportunity? Well, what I try to emphasize is the scale we have will be very hard to replicate. So you're correct. So there's no doubt that there's a few of us that have extreme first mover advantage, much like what happened with multifamily. But what I try to really hone in on is we are not reinventing anything. We're doing something that's existed for a hundred years and doing it 10 times better. So if I'm running a home and I'll rent for, I would look at all the

options because the real estate would speak to me one way or the other. But I love the peace of mind that I could call Invitation Homes at three in the morning and say, hey, I got an issue in Phoenix in the middle of the summer with an HVAC unit and that they'll be there within a couple of hours. That's huge. Whereas if I was dealing with somebody that owned a home and they're on vacation in the summer somewhere else and they're trying to price it and figure out how they want to fix it, I don't want that type of experience. What I want is consistency and kind of that value proposition. So you're right in that, you know, regionally, some of us will have better expertise, but the reality is we can make a better value proposition because we can compress costs on procurement, vendor services, all that stuff.

And we do about 50% of it in-house. And then the heavier stuff we outsource, like we're not, we don't have our people getting on roofs and fixing roofs. We hire, we have with third-party partners in the market that fix roofs, but we give them so much business that we can actually get them there on time quickly and at a cost that's reasonable to us. And so we handle all that pain and suffering. All right. So now you have a tenant, you guys have significantly lower turnover of your tenants versus a typical single family home renter. I read something like 35% versus 55%, which is a huge cost savings as an owner to not have the tenant constantly turning over. You also give people the ability to switch houses within the market, which is also

important. As people make more money, they want to trade up, but they still like the rental. But how else do you make money? You've got other services like video and security and other things you can upsell. How does that work? So a couple of things. So the resident today, and I think it's important to understand who the customer is. They're about 39 years old, typically two adults in the home, one to two kids, and they have a

combined household income north of, say, $110,000, right? Okay. You're right on the retention factor. Josh, we renew between 70% and 75% at our renewal. Outstanding. Yeah. I mean, it's a really remarkable statistic. And then, so the customer stays with us now three plus three years, and it looks like it's trending

into a longer duration. What can we add to that experience? You're right, smart technology, smart thermostat, smart locks. By the way, there's a total ESG component to this. We want to do it really well because we want to be responsible in the marketplace, know what's going on with our homes. We do things like hardscape on the front yards and things like that to also help keep renewable costs down both for the resident and for the portfolio. And then we're bringing in really cool things. So we actually drop ship now on every

lease filters to our residents every 90 days. So that helps with, maintains our CapEx assumptions in a better way, but it also is environmentally friendly. And then the other side of it is, OK, what's the value add? So we have customers that want to upgrade kitchens, right? They come in, they like the house and they go, this kitchen was maybe upgraded six years ago, seven years ago and styles have changed, whatever. We'll normally do that algorithmically with our homes and through our normal asset management process. algorithmically with our homes and through our normal asset management process, we have processes where our residents say, hey, I'd like a kitchen right now. And we obviously offer this. And we can come in and for another $100, $200 a month, give a brand new kitchen. And that ROI on that's like a mid-teens unlevered cash on cash. So for the business, it's terrific. For the home and for

the long duration of staying ahead of CapEx. It's fantastic. And the resident has an awesome personalized experience. So stuff like that. And there's a number of other kind of additional ancillary things that our residents can opt into that are cool around pets, pest control. You know, we want to take the stress out of homeownership. All right. So now you have this situation where you have millennials as a generation increasingly comfortable with the idea of monthly costs versus being tied down to something forever. You have a workforce arguably demands more mobility than ever. And flexibility has in the last year become really the touchstone of the US economy, like being able to do what you do from anywhere.

What does that mean for your business? How should we think about rental being in a secular growth phase versus ownership? Or is it not quite like that? What do you think about that topic? I think you nailed it. There's 65 million people between the ages of 22 and 36 coming our way. They want flexibility. By the way, they want to do everything on this, a phone, right? They want to be completely mobile. And I think your point of, you know, just the COVID era, for example, has probably accelerated five to 10 years of natural maturation and being digital and being mobile into 12 months. And you and I are probably the same way. We're living on a handful of apps, right? We use them all the time. Uber Eats or

your JP Morgan app, whatever it is. And it's really easy. And so we want that experience. We call it the leasing lifestyle. We want that to be flexible. We want it to be easy. We want you to be able to move with us. If you're in a home that's 1800 square feet in Atlanta and you relocate to Tampa and you've had a child or two along the way, we should make that really seamless to where you can find a home with us in Tampa while you're getting your bearings. And so you shouldn't lose that customer just because they're moving markets. Totally. And by the way, on the ancillary stuff that we were just talking about, we also want to give them services they can take with them if they buy a home or if they lease from somebody else. Like that's a really good business mousetrap for the right partnerships where our customers get stuff at a lower cost and they ultimately can take it with them. That residual revenue will pay dividends for a long time.

The suburbanization boom, though, that we've experienced over the last year, your stock price didn't seem to get caught up in that in the way that, let's say, the home builders did, right? Like over the last year, companies that are directly involved in building homes or remodeling have gone crazy to the upside from Home Depot to Sherwin-Williams, Toll Brothers, et cetera. We didn't quite see that with single family home rentals, even though you probably had more people coming to you to rent homes in the suburbs than ever before in a single year. We talked about this on our earnings call. I mean, we grew NO than ever before in a single year. We talked about this on our earnings call. I mean, we grew NOI last year in a COVID year with all the eviction moratoriums by almost 4%. And most companies, multifamily, minus 10, minus 15%, right? Like I think we also are caught up in a little bit of the technology kind of trade right now and

everything's super interesting. The builders have done a fantastic job with deliveries and they're valued a little bit different than public REITs. But I think you're highlighting something that we get asked all the time. If I could predict the market and how it's going to react to great numbers, I'd be in the wrong business. I should be doing what you're doing. But the reality is we have a phenomenal business that's been beyond resilient during the pandemic. Our occupancy today is 98.3%. Let me interject. I didn't mean to paint a picture that shareholders have not been rewarded. We actually ran the numbers this morning. The IYR, which let's just say is the most common ETF on REITs since your inception, five years now, right? 2017, four years now. The IYR is up 39%.

You're up 74%. That's in total return. So you've basically doubled the performance of the REIT index. And you've also outperformed your closest comp, I guess, American Homes for Rent. I know there are big differences. We don't have to dwell on that. But they're up about 61% since your inception. So you've outpaced anyone else and you've doubled what the REIT index has done. So it's been a phenomenal run for INVH shareholders. Thank you. Let's talk about the dividend. It's not particularly high for a REIT. It's about 2%-ish, but I think that's because you guys have a lot of opportunity to grow the business. So how do you think about that dividend payout, how important it is to your shareholders and where you think it could get to over time without making any promises or

predictions? Yeah, always have to be careful on forward-looking statements, right? So first, when we went public, we laid this out really clearly and there was a reason for it. When we went public, we were a little over 11 times net debt to EBITDA, which in the REIT space, that's pretty high, right? People generally, the REIT mafias, they like to see your balance sheet be a bit lower, right? They don't want you that levered. I think what people have come to understand about SFR is we actually, we get a lot of investors say, we think your business could use debt differently. Now, we want to be investment grade. We want to get down to the right levels. So we laid out a plan. So we had a modest dividend to start out. We've modestly grown it every year.

And then what we've also been doing is deleveraging the balance sheet through all cash acquisitions. We've been growing the business. And so I think we've been able to really accomplish both goals of growth, bringing leverage down slowly over time. At the end of this year, we should be inside seven times. And that will give us that profile that I think the street, a lot of certain investors would definitely like to see. But we always want to find that balance. We basically want to have all the tools available to us, right? You want to have low debt balance sheet for when things are really good and you could gear up and maybe lean in and buy more. And then at those times when the market's a little bit uncertain, it won't hurt us to

have a little less debt. So we've just tried to strike that rent balance. I think the dividend, our approach to the dividend will be the same. We're going to continue to grow it over time and distance. Be smart about it. It will naturally grow. But we're also going to use cash to keep reinvesting in good shareholder returns like the ones you just talked about.

I mean, we have led, just to pile on a little bit, we have led NOI growth across any residential business in the public space every year for the last four years. I mean, it's like almost 30% NOI growth over four years. In a REIT, that should be a really compelling growth story beyond just a consistent dividend payer. So we're just finding that right balance. So I want to end by asking you, not forward-looking statements per se, but just the

future in general, the present and future in general. It's not exactly a bargain market for buying new properties right now. We know that there is a boom-bust cycle. We're definitely in the boom portion, thanks to ultra-low interest rates. Would you almost go so far as to say that you might actually be counter cyclical, meaning in a down real estate market, A, you have more people that choose to rent because it's too hard to get a loan, or they're worried about pricing if they buy an asset. And then you guys can get back to being acquisitive like you were in the 2012, 2016 period. It doesn't almost work in your favor if there were to be, I don't think there's a real estate bust on the horizon, but if that were to happen, that's kind of like what you need for the next phase of growth. No? Well, taking a step back, two thirds of the country owns

something. One third of the country leases something, right? It's generally, home ownership rates between 62 and 68% always is, somewhere in there. So your point, if we saw a little bit of some supply creep for us, we'd actually be able to be a bit more maybe growth focused, right? And could have more opportunities buying. With that being said, even in a tight environment because of how efficient we are, we're growing really well. We bought 1,200 homes in the fourth quarter. We did almost $350 million of growth. We've said that this year, you know, kind of normal table stakes growth will be a billion dollars outside of any M&A or other strategic opportunities that we have. We're continually- A billion in assets, a billion in new houses?

A billion dollars of growth. Yeah. New homes. Yeah. And that feels very achievable, say 200 to 300 million a quarter. And so all of that feels even in a tight environment, very doable from our perspective. And we certainly would try, Josh, to grow well beyond that based on where our metrics are. I mean, we put this out there. This is public information. We had over 8% new lease growth in February. I mean, it's just, it's remarkable the amount of demand there is for quality housing right now. And you're in a lot of the right markets, people running from New York City or LA or San Francisco, and they end up in Dallas. They end up in Zona, Florida. It's almost like you saw it happening in advance. It's unbelievable. We were very deliberate about which markets and why. It's

one of the things that we spend a lot of time on still to this day. The last thing I want to ask you is, so you've got a tenant, you're keeping the tenant longer than anyone else in single family rental, like at scale. And then they become accustomed to buying all these other services from you because you're delivering them more effectively, cheaper, et cetera. Why not like really go all the way and just become a full-blown lifestyle brand? I remember Disney building Celebration, the town, and the idea was that would be a prototype

for how people would want to live in a Disney. All right, so that's maybe a little bit too far on the spectrum, but like why not have an invitation living, you know, lifestyle and really go all the way with branded everything? Is there a point at which it gets too far away from the original premise of the business? Like, how do you think about what that opportunity might be? I mean, we're risk adjusted return seekers, right? We want growth in property values, growth and yield.

So if there's a value proposition that says that our customers want more than just a living component, and maybe there's other lifestyle things that could feed in that, we would certainly stay open-minded to it. We do own some communities where you can do some things with- I'm thinking, by the way, I'm thinking dating, fitness. All right, this might be too far. If you're in a specific market like Tampa, and you've got a lot of young families that are renting homes from you in that market and you could do more in terms of having the kids take swimming classes or something that that's the way i'm thinking that's some of the stuff that we're exploring truthfully so okay we've done some of it uh We totally get it with like the gym memberships and some of those things. And by the way, it goes back to what I said, we want things

that people could take with them, right? To your point, the reoccurring kind of ancillary revenue stream can grow over time and distance. We do that as a net positive for our shareholders. So I think that as you want the footprint to start with, you want the right real estate, but we have, there's no doubt that it should be like going to Costco. You're in the club and there's better deals because you're in the club. And that's where our business is evolving without a doubt.

Well, you're doing a great job as a day one shareholder. I'm very happy with everything that I've seen you guys do. And the level of communication is great. So I just want to say thank you. And thanks for joining us today, sharing all these details. And I learned a lot about the business today. So thanks again, Dallas. This has been fantastic. Thanks for having me, Josh. Appreciate it. Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash the compound RWM.

Talk to you next week.